By Daniel Shin
There is growing public debate on a wealth tax. Several market analysts reported that billionaires added more than $4 trillion to their wealth during the unprecedented COVID-19 pandemic. If you look at the other side of the coin, during the pandemic, the crash in the international tourism industry among the most severely hit industries caused a loss of $4 trillion.
The U.S. Congress authorized $4 trillion under the COVID-19 pandemic relief packages. However, the U.S. federal government ran a deficit of more than $3.1 trillion in the fiscal year of 2020, triple the deficit for 2019. It accounts for 15 percent of GDP and is at its highest level since World War II. Globally, $16 trillion in terms of fiscal measures used to pay for the pandemic are about to come due around the globe as public debt surges.
But who is going to pay for pandemic-related government losses? Unfortunately, taxpayers will bear the costs of COVID-19 for decades. It is a hard lesson that we have learned from the pandemic, although it will take a while until we realize the real fiscal impact. We all hope that we will soon see this pandemic end. However, the burden of debt is no longer bearable if COVID-19 becomes a norm.
The richest 1 percent own close to half of all global wealth now, and that proportion is on track to grow to two-thirds by 2030. These extremely wealthy individuals often find a way to reduce how much they pay in taxes and most of them do so legally, by leveraging many laws and tax loopholes. As long as they adhere to the law, there should be no issues. But it may not look like a fair game when you see that some billionaires pay almost no taxes. Now the rich have become the target.
The concept of a wealth tax is nothing new, but it quickly re-emerged after the pandemic began and began to put pressure on sound fiscal management due to the public health expenditures. After two world wars, a one-off wealth tax was levied in many European countries and Japan to fund recovery.
A few countries have recently enacted a new law and started charging a wealth tax, which may seem utterly progressive to some taxpayers. Argentina passed a tax on the wealthy to pay for medical supplies and relief measures amid the ongoing pandemic.
In the public domain, U.N. Secretary-General Antonio Guterres has been calling for a tax on the rich who profited during the pandemic. The IMF has also joined the band of nations in support of a wealth tax to help cover the cost of the pandemic. Many governments are also considering levying a higher tax on what people earn as well as on what they own as potential ways to increase revenue and fund their relief packages.
In contrast, Nobel Prize laureate in the economic sciences Angus Deaton has warned that if a one-off wealth tax is introduced to pay off pandemic debts, the rich would likely find ways to avoid it; and it would probably become permanent.
The government will be in trouble again if the economy enters a downward spiral due to the mounting costs of another pandemic and its aftermath. A well-designed tax could significantly raise revenue in a fair and optimal way without administrative headaches.
Many believe that a one-off wealth tax could encourage people, who have the ability to pay their dues, while not discouraging people who work and mostly live on their small salaries as their primary source of income.
For public sentiment during the pandemic, a one-off wealth tax seems to be the most plausible route for any tax increase. However, the majority of taxpayers who would be liable for this type of tax increase would be people in their 50s and 60s, who still have to work to pay their bills.
A wealth tax is similar to a real estate property tax. But unlike a property tax, a wealth tax covers all the wealth an individual possesses. Therefore, it is often criticized as the more you have, the higher tax you have to pay, whether it is a simple onetime tax or if it becomes a broad and permanent tax scheme with lower exemptions and higher tax rates.
If there is no way for startup entrepreneurs to cover their wealth tax obligations as privately-held companies, in the worst case, a wealth tax could force the owners of private companies to sell their businesses earlier than they normally would in order to pay the taxes they owe.
A wealth tax could distort economic behavior in a way that is harmful to overall economic growth and the nation's prosperity. For example, by taking a fraction of people's wealth each year, this tax could reduce the return on investing, and discourage saving.
This situation could seriously affect economic growth because investing and capital accumulation, which are critical for entrepreneurship and innovation, would be exposed to higher tax risks. To the extent that entrepreneurial talent is important to success for both individuals and the nation, a wealth tax could damage innovation and job creation.
Our current way of taxing the wealthy is far too complicated, which has led to resentment and tactical avoidance. We need a better way. We should be committed to a fair and efficient tax scheme. The wealthy could pay their fair share by reforming the dividend tax, pensions or other business disposals, for example, to make the tax system fairer and more sustainable.
Policymakers should stick to a tax system that is fair and optimal. Other policies could encourage the wealthy to voluntarily contribute to society, but not force them. An income tax surcharge on high-income households could be quickly implemented but wouldn't be enough.
Many nations need more tax revenue and special interests can easily get government favors in these emergency situations. But none of these justify a wealth tax, which could damage entrepreneurship and innovation, the engines of economic growth. A wealth tax would both fail to accomplish the goal of effectively raising new revenue and also deliver a devastating blow to domestic growth and prosperity in the long run.
Daniel Shin is a venture capitalist and senior luxury fashion executive, overseeing corporate development at MCM, a German luxury brand. He also teaches at Korea University.
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The U.S. Congress authorized $4 trillion under the COVID-19 pandemic relief packages. However, the U.S. federal government ran a deficit of more than $3.1 trillion in the fiscal year of 2020, triple the deficit for 2019. It accounts for 15 percent of GDP and is at its highest level since World War II. Globally, $16 trillion in terms of fiscal measures used to pay for the pandemic are about to come due around the globe as public debt surges.
But who is going to pay for pandemic-related government losses? Unfortunately, taxpayers will bear the costs of COVID-19 for decades. It is a hard lesson that we have learned from the pandemic, although it will take a while until we realize the real fiscal impact. We all hope that we will soon see this pandemic end. However, the burden of debt is no longer bearable if COVID-19 becomes a norm.
The richest 1 percent own close to half of all global wealth now, and that proportion is on track to grow to two-thirds by 2030. These extremely wealthy individuals often find a way to reduce how much they pay in taxes and most of them do so legally, by leveraging many laws and tax loopholes. As long as they adhere to the law, there should be no issues. But it may not look like a fair game when you see that some billionaires pay almost no taxes. Now the rich have become the target.
The concept of a wealth tax is nothing new, but it quickly re-emerged after the pandemic began and began to put pressure on sound fiscal management due to the public health expenditures. After two world wars, a one-off wealth tax was levied in many European countries and Japan to fund recovery.
A few countries have recently enacted a new law and started charging a wealth tax, which may seem utterly progressive to some taxpayers. Argentina passed a tax on the wealthy to pay for medical supplies and relief measures amid the ongoing pandemic.
In the public domain, U.N. Secretary-General Antonio Guterres has been calling for a tax on the rich who profited during the pandemic. The IMF has also joined the band of nations in support of a wealth tax to help cover the cost of the pandemic. Many governments are also considering levying a higher tax on what people earn as well as on what they own as potential ways to increase revenue and fund their relief packages.
In contrast, Nobel Prize laureate in the economic sciences Angus Deaton has warned that if a one-off wealth tax is introduced to pay off pandemic debts, the rich would likely find ways to avoid it; and it would probably become permanent.
The government will be in trouble again if the economy enters a downward spiral due to the mounting costs of another pandemic and its aftermath. A well-designed tax could significantly raise revenue in a fair and optimal way without administrative headaches.
Many believe that a one-off wealth tax could encourage people, who have the ability to pay their dues, while not discouraging people who work and mostly live on their small salaries as their primary source of income.
For public sentiment during the pandemic, a one-off wealth tax seems to be the most plausible route for any tax increase. However, the majority of taxpayers who would be liable for this type of tax increase would be people in their 50s and 60s, who still have to work to pay their bills.
A wealth tax is similar to a real estate property tax. But unlike a property tax, a wealth tax covers all the wealth an individual possesses. Therefore, it is often criticized as the more you have, the higher tax you have to pay, whether it is a simple onetime tax or if it becomes a broad and permanent tax scheme with lower exemptions and higher tax rates.
If there is no way for startup entrepreneurs to cover their wealth tax obligations as privately-held companies, in the worst case, a wealth tax could force the owners of private companies to sell their businesses earlier than they normally would in order to pay the taxes they owe.
A wealth tax could distort economic behavior in a way that is harmful to overall economic growth and the nation's prosperity. For example, by taking a fraction of people's wealth each year, this tax could reduce the return on investing, and discourage saving.
This situation could seriously affect economic growth because investing and capital accumulation, which are critical for entrepreneurship and innovation, would be exposed to higher tax risks. To the extent that entrepreneurial talent is important to success for both individuals and the nation, a wealth tax could damage innovation and job creation.
Our current way of taxing the wealthy is far too complicated, which has led to resentment and tactical avoidance. We need a better way. We should be committed to a fair and efficient tax scheme. The wealthy could pay their fair share by reforming the dividend tax, pensions or other business disposals, for example, to make the tax system fairer and more sustainable.
Policymakers should stick to a tax system that is fair and optimal. Other policies could encourage the wealthy to voluntarily contribute to society, but not force them. An income tax surcharge on high-income households could be quickly implemented but wouldn't be enough.
Many nations need more tax revenue and special interests can easily get government favors in these emergency situations. But none of these justify a wealth tax, which could damage entrepreneurship and innovation, the engines of economic growth. A wealth tax would both fail to accomplish the goal of effectively raising new revenue and also deliver a devastating blow to domestic growth and prosperity in the long run.
Daniel Shin is a venture capitalist and senior luxury fashion executive, overseeing corporate development at MCM, a German luxury brand. He also teaches at Korea University.
